All eyes are on the Bank of Japan (BoJ) as it prepares to announce its September decision, following the recent verdict by the Federal Reserve (Fed). The BoJ, under the leadership of Kazuo Ueda, is widely expected to maintain the status quo on monetary policy, keeping its key interest rate at -0.10% and leaving its yield curve control program unchanged.
In terms of forward guidance, the BoJ is likely to retain its dovish tone but might begin subtly hinting at a shift away from its ultra-accommodative stance. This strategy aims to prevent market disruptions and minimize surprises when the actual policy change occurs.
Governor Ueda recently indicated that by year-end, sufficient data on consumer prices could be available to make decisions about possible increases in borrowing costs. These remarks suggest a growing inclination among policymakers to move away from negative interest rates.
With inflation consistently exceeding the 2% target, a surging yen and rising oil prices, it wouldn’t be surprising to see a less dovish central bank. Although “less dovish” doesn’t equate to “hawkish,” it marks a departure from the previous status quo.
Any subtle shift in the BoJ’s message indicating a willingness to consider a less accommodative stance could bolster the Japanese yen, creating conditions for a short-lived rally against the US dollar.
In the event of a USD/JPY pullback, it may be temporary. Multi-year highs in U.S. Treasury yields, especially in the long end of the curve, will likely continue supporting the attractiveness of the greenback in the FX market.
USD/JPY Technical Analysis
USD/JPY faced a dip toward 146.00 early last week but found support, rebounding toward channel resistance around 148.00 in recent days. Despite a bullish bias, the pair struggled to decisively break the 148.00 barrier, with repeated resistance in this zone.
Following the recent rejection, sellers gained momentum, pushing the exchange rate to around 147.50 at the time of writing. If the pullback extends in the coming sessions, initial support can be found at 145.90, followed by 144.55. Further weakness may target 143.85.
On the other hand, if market sentiment turns in favor of buyers, the first technical hurdle is near 148.00. Clearing this resistance could strengthen upward pressure, potentially leading to levels of 148.80 and 150.00.
Disclaimer: This analysis is for informational purposes and should not be considered financial advice.
